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VAT change? Fat chance!

January 27, 2017
Pfumo Tax and Accounting. 1/30/2017 Edition 1

VAT change? Fat chance!

Even though a hike may be the most effective way to raise additional tax revenue.

JOHANNESBURG – Although the 2017 Budget is still over a month away, speculation around how Finance Minister Pravin Gordhan will raise additional tax revenues is already rife.

In his Medium-Term Budget Policy Statement (MTBPS) in October, Gordhan indicated that measures would likely be needed in February to raise tax revenue by about R28 billion a year. This is an effort to balance the books and stick to the path of fiscal consolidation.


While R28 billion is a relatively small number compared to total revenue north of R1 trillion, it is not the sort of money that falls into government’s lap when the economy is growing at less than 1%.


Tax commentators and practitioners often argue that a VAT hike is the most effective way of raising additional revenue. Since South Africa has a relatively small personal income tax base and corporate taxes are fairly high by international standards, the debate around a potential VAT rate hike continues to flare up.

Besides personal income tax, VAT is the biggest source of

Should individual taxpayers – particularly wealthy ones – brace themselves for bad news next month?

tax revenue. According to Tax Statistics from National Treasury and the South African Revenue Service (Sars), net VAT collections reached R281.1 billion in the 2015/16 fiscal year, accounting for 26.3% of the R1 070 billion collected. Personal income tax (36.4%) and corporate income tax (18.1%) were the other significant contributors.

It is estimated that a 1 percentage point increase in

the VAT rate (currently at 14%) could raise tax revenue in excess of R20 billion. South Africa’s VAT rate is considered relatively low compared to some other economies and since the VAT system is already entrenched, the administrative burden of introducing a hike would be limited compared to a new carbon or sugar tax.

In the current economic context however the impact of such a move on South Africa’s GDP and inflation trajectory cannot be ignored and measures would likely have to be introduced to protect poor consumers.

Davis Tax Committee

The Davis Tax Committee has already published its interim report on VAT. Although the report did not explicitly recommend a VAT hike, it suggested that it would be necessary to fund significant projects such as a National Health Insurance. The committee is expected to publish a final report in the next few months.

*This is an extract from an article by Inge Lamprecht and first published on the moneyweb website.

For the full article go to:


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Which bodes the question: Should individual taxpayers – particularly wealthy ones – brace themselves for bad news next month?*
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